The practice of limiting rental housing is drawing frustration from Winona to St. Paul – and a lawsuit.

The city of Winona is being sued for its limits on rental housing by homeowners. Meanwhile, West St. Paul recently approved new rental limits and St. Paul officials are considering similar measures around the University of St. Thomas.

Anthony Sanders, an attorney representing Winona homeowners suing that city, said they believe such restrictions violate laws and put two homeowners he represents, Ethan Dean and Holly Richard, close to losing their homes.

Dean and Richard both have short-term exemptions from the rental limit, but those expire next year. “As of April of next year, they’d be unable to get rental income for their mortgages, which for both of them puts them perilously close to foreclosure,” Sanders said.

Since the real estate market collapsed after its peak in 2006, many owners of homes and condos have been renting out their properties rather than selling them at a loss or risking foreclosure, according to real estate observers.

The plaintiffs in the Winona case, filed Oct. 25 in Winona County Court, want to see the rental limit struck down as unconstitutional.

“In a time of plummeting housing values and widespread foreclosures the city of Winona is enforcing a law that makes the housing crisis in the city even worse,” the lawsuit said.

Winona’s city attorney, Chris Hood, declined to comment on the litigation and referred questions to an outside attorney, who also didn’t comment.

Winona instituted the rule in 2005 limiting rental licenses to no more than 30 percent of properties on a block after issues in some neighborhoods around Winona State University.

In August, the St. Paul City Council approved a one-year moratorium that prevents homeowners near the University of St. Thomas from converting their homes into student apartments as the city tries to cope with noise and other problems associated with student housing. The moratorium’s boundaries run from Interstate 94 south to St. Clair Avenue and from the Mississippi River east to Fairview Avenue.

During that time, St. Paul officials will study the issue, including the possibility of instituting permanent new restrictions on conversions in the area.

Meanwhile, the West St. Paul City Council in September decided that no more than 10 percent of single-family homes on a residential block can hold a rental license as of Jan. 1. The move was intended to preserve housing values, officials said. Existing rental license holders can remain as is until the license holders decide not to reapply.

According to the Winona lawsuit, plaintiffs Dean, Richard and Ted and Lauren Dzierzbicki all are homeowners not now living in Winona.

Dean is a police and corrections trainer for the U.S. Department of Defense and has been away from home for long periods after serving four tours of duty in Iraq and Afghanistan.

Richard purchased her home while working for St. Mary’s University in Winona but currently lives in Vermillion, S.D., where she’s pursuing a doctorate at the University of South Dakota.

The Dzierzbickis purchased their Winona home for their daughter to live in while she attended Winona State University. Their daughter graduated in spring 2010 and moved away, leaving the house vacant.

The lawsuit alleges that in each of the three situations, the homeowners are trying to sell the homes and that those houses are on blocks where more than 30 percent of neighbors already have rental licenses.

Therefore, the lawsuit said, any potential buyers also would be denied the right to rent the home out.

This prohibition has prevented the plaintiffs from selling their homes, the lawsuit alleges.

Potential buyers have walked away when they learn they won’t be able to rent out the homes, according to the lawsuit.

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